Read This Before You Think About Selling Las Vegas Sands

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Should you sell Las Vegas Sands (NYS: LVS) today?

The decision to sell a stock you've researched and followed for months or years is never easy. But if you fall in love with your stock holdings, you risk becoming vulnerable to confirmation bias -- listening only to information that supports your theories, and rejecting any contradictions.

In 2004, longtime Fool Bill Mann called confirmation bias one of the most dangerous components of investing. This warning has helped my own investing throughout the Great Recession. Now I want to help you identify potential sell signs on popular stocks within our 4-million-strong Fool.com community.

Today I'm laser-focused on Las Vegas Sands, ready to evaluate its price, valuation, margins, and liquidity. Let's get started!

Don't sell on price
Over the past 12 months, Las Vegas Sands has risen 53.5% versus an S&P 500 return of 9.1%. Investors in Las Vegas Sands have every reason to be proud of their returns, but is it time to take some off the top? Not necessarily. Short-term outperformance alone is not a sell sign. The market may be just beginning to realize the true, intrinsic value of Las Vegas Sands. For historical context, let's compare Las Vegas Sands' recent price with its 52-week and five-year highs. I've also included a few other businesses in the same industry or a related one.

Company

Recent Price

52-Week High

5-Year High

Las Vegas Sands$43.59$55.47$148.80
Marriott International (NYS: MAR) $28.22$42.78$51.40
Wynn Resorts (NAS: WYNN) $145.32$172.58$176.10
Starwood Hotels & Resorts Worldwide (NYS: HOT) $43.78$65.51$75.50

Source: Capital IQ, a division of Standard & Poor's.

As you can see, Las Vegas Sands is down from its 52-week high. If you bought near the peak, now's the time to think back to why you bought it in the first place. If your reasons still hold true, you shouldn't sell based on this information alone.

Potential sell signs
First, let's look at the gross margins trend, which represents the amount of profit a company makes for each $1 in sales, after deducting all costs directly related to that sale. A deteriorating gross margin over time can indicate that competition has forced the company to lower prices, that it can't control costs, or that its whole industry's facing tough times. Here is Las Vegas Sands' gross margin over the past five years.

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Source: Capital IQ, a division of Standard & Poor's.

Las Vegas Sands is having no trouble maintaining its gross margin, which tends to dictate a company's overall profitability. This is solid news; however, Las Vegas Sands investors need to keep an eye on this over the coming quarters. If margins begin to dip, you'll want to know why.

Next, let's explore what other investors think about Las Vegas Sands. We love the contrarian view here at Fool.com, but we don't mind cheating off our neighbors every once in a while. For this portion of our research, we'll examine two metrics: Motley Fool CAPS ratings and short interest. The former tells us how Fool.com's 170,000-strong community of individual analysts rates the stock, and the latter shows what proportion of investors is betting that the stock will fall. I'm including other peer companies once again for context.

Company

CAPS Rating (out of 5)

Short Interest (% of Float)

Las Vegas Sands**2.0
Marriott International*5.6
Wynn Resorts*3.9
Starwood Hotels & Resorts Worldwide*5.6

Source: Capital IQ, a division of Standard & Poor's.

The Fool community is rather bearish on Las Vegas Sands. We typically like to see our stocks rated at four or five stars. Anything below that level is a less-than-bullish indicator.  I highly recommend you visit Las Vegas Sands' stock-pitch page to see the verbatim reasons behind the ratings.

Here, short interest is at a mere 2.0%. A number like this typically indicates that few large institutional investors are betting against the stock.

Now, let's study Las Vegas Sands' debt situation, with a little help from the debt-to-equity ratio. This metric tells us how much debt the company's taken on, relative to its overall capital structure.

anImage

Source: Capital IQ, a division of Standard & Poor's.

Las Vegas Sands has taken some debt over the past five years. When we take into account increasing total equity over the same time period, this has caused debt-to-equity to decrease, as seen in the above chart. Based on the trend alone, that's a good sign. I consider a debt-to-equity ratio below 50% to be healthy, though the number varies by industry. Las Vegas Sands is currently above this level, at 107.4%.

The last metric I like to look at is the current ratio, which lets investors judge a company's short-term liquidity. If Las Vegas Sands had to convert its current assets to cash in one year, how many times over could it cover its current liabilities? As of the last filing, Las Vegas Sands has a current ratio of 1.72. This is a healthy sign. I like to see companies with current ratios equal to or greater than 1.5.

Finally, it's highly beneficial to determine whether Las Vegas Sands belongs in your portfolio -- and to know how many similar businesses already occupy your stable of investments. If you haven't already, be sure to put your tickers into Fool.com's free portfolio tracker, My Watchlist. You can get started right away by adding Las Vegas Sands.

The final recap

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Las Vegas Sands has failed only one of the quick tests that would make it a sell. Does that mean you should hold your Las Vegas Sands shares? Not necessarily. Just keep your eye on these trends over the coming quarters.

To do that, I strongly recommend adding Las Vegas Sands to My Watchlist to help you keep track of all of our ongoing coverage of the company.

At the time this article was published Jeremy Phillips owns no shares of the companies mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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